Kramer Levin Wins New York State Tax Case for Its Client UniCredit

Kramer Levin represented UniCredit, S.p.A., an Italian bank with a branch in New York, in challenging a Notice of Deficiency issued by the New York State Department of Taxation and Finance, Division of Taxation. Following an audit, the Division had made certain adjustments to UniCredit’s “income allocation factors,” and substantially increased the percentage of UniCredit’s income taxable in New York, based largely on interbranch transactions between its international banking facility (IBF) and other branches of the bank, which according to the Division produced “ineligible gross income” for the IBF under the applicable provisions of Article 32 of the New York Tax Law. Following a hearing before an Administrative Law Judge (ALJ) in October 2012, the ALJ issued a decision on November 7, 2013, canceling the Division’s adjustments and holding that the Division had misapplied and misinterpreted the Tax Law and regulations by identifying income from IBF interbranch transactions as ineligible gross income and using it to adjust the bank’s allocation factors. In so holding, the ALJ sustained UniCredit’s argument that amounts recorded by a bank in connection with interbranch transactions involving its IBF are not income at all and should be disregarded altogether for purposes of New York State’s formula allocation scheme. The Kramer Levin team included Tax Partners Maria T. Jones and Pamela M. Capps, and Litigation Special Counsel Susan Jacquemot.